How should the machine tool and tooling industry respond to the trade war?

The U.S.-China trade war officially erupted on July 6, when the United States imposed a 25% tariff on $34 billion worth of Chinese goods. China made its position clear: it would never fire the first shot, but in order to safeguard its core national interests and the well-being of its people, it would be compelled to mount a necessary counterresponse. Over the past few months, the machine tool industry has been closely monitoring developments in the U.S.-China trade conflict, as the trade war is expected to have significant implications for the sector.

I. Regarding the China–U.S. Trade War

The China–U.S. trade dispute, also referred to as the China–U.S. trade war or trade friction, is a major issue in Sino‑U.S. economic relations. The conflict primarily unfolds along two dimensions: first, in export sectors where China enjoys a comparative advantage; and second, in import‑related areas and technology‑intensive fields where China lacks such advantages. The former is largely competitive, whereas the latter reflects market imperfections; their respective impacts on the economic welfare and long-term development of the two countries differ significantly. At present, the focus is chiefly on the first dimension.

On June 15, 2018, the U.S. government published a list of goods subject to additional tariffs, imposing a 25% duty on approximately $50 billion worth of imports from China. Specifically, additional tariffs on about $34 billion worth of goods took effect on July 6, 2018, while for roughly $16 billion in goods, the administration began soliciting public comments on the proposed additional duties.

In the list of products subject to additional tariffs, nearly all machine tool categories are covered. In other words, any machine tool exported to the United States—regardless of its type or grade—will incur an extra 25% tariff on top of the existing 5%, bringing the total to 30%. Additionally, a 25% surcharge will be imposed across the board on cutting tools, functional components, accessories, abrasives, and related items.

The product portfolio for machine tool users also encompasses a wide range of applications, including: engine‑related equipment—primarily large‑scale machinery such as steam turbines, internal combustion engines, hydro turbines, turbofan engines, turboprop engines, electric motors, liquid pumps, and compressors; construction machinery, covering cranes, mobile elevating work platforms, forklifts, bulldozers, pile drivers, and more; and transportation vehicles, including tractors, automobiles, subways, motorcycles, helicopters, airplanes, rockets, and ships—essentially listing virtually all types of transport.

Overall, the list released this time continues to target China’s strategic industries for 2025, specifically aerospace equipment, high-speed rail equipment, next-generation information technology, agricultural machinery, CNC machine tools and industrial robots, biopharmaceuticals and medical devices, new energy and new materials, as well as ships and offshore engineering equipment. Although the U.S. aims in this trade war extend beyond the trade sphere, the direct impact on companies in the machine tool and tooling sector remains the imposition of an additional 25% tariff.

II. Impact on the Industry and Corporate Response Measures

The China Machine Tool Industry Association, as the national trade association for China’s machine tool and tooling sector, is closely monitoring the evolving dynamics of the U.S.–China trade war and assessing the potential impacts on its member companies. In 2017, mainland China’s total exports of machine tool and tooling products amounted to US$3.2 billion, with US$1.86 billion destined for the United States—of which US$350 million was for metalworking machine tools and approximately US$550 million for cutting tools. At the level of individual firms, given the relatively modest export values, the impact of additional tariffs may appear limited. However, from the perspective of long-term international market development, the implications are nonetheless significant. To this end, we surveyed several industry players engaged in U.S. exports—including manufacturers of metalworking machine tools (both machining and forming), cutting tools and related implements, accessories, and abrasive materials—and have summarized their circumstances below.

With the onset of the trade war, companies that export to the United States have inevitably been affected. Firms with relatively small export volumes can shift to alternative trade channels to mitigate losses. However, for those with a substantial share of U.S. exports—particularly export‑oriented enterprises, some of which have been shipping to the U.S. for more than two decades—the extent of the damage they will face is readily foreseeable.

However, it is reassuring that these companies did not adopt a wait-and-see approach; instead, they proactively collaborated with their U.S. customers, doing everything possible to mitigate the impact. Since the beginning of March, they have maintained close communication with U.S. importers and distributors, discussing ways to absorb the cost increases resulting from the tariff hikes.

For export products that lack distinctive features, are easily substitutable, or suffer from a lack of competitiveness, an increase in tariffs will inevitably lead to a decline in their market share in the United States.

Meanwhile, for companies that tailor their products specifically to U.S. customers, the market has remained stable, with long-term contracts in place; a 25% tariff increase would therefore have a significant impact. To minimize losses, some are adopting a strategy of sharing the burden among importers, distributors, and themselves, while others plan to shift their U.S. market share to other markets and develop new export channels, among other measures.

There are two categories of tariff measures in the cutting tools industry regarding exports to the United States: first, finished cutting tools, which currently face no additional tariffs; second, raw materials for cutting tools, which will incur an additional 25% tariff on top of the existing rates.

In short, everyone is taking proactive measures and actively seeking solutions. We also sincerely hope that the government and industry associations will strengthen communication with countries outside the United States on import‑export cooperation, providing robust advisory services to support the machine tool and tooling sector’s exports to other markets.

III. Focus on the Long Term and Enhance Ourselves

How long the U.S.-China trade war will last, and what unforeseen developments may arise along the way, remain highly uncertain. We must closely monitor the trajectory of the conflict to fine-tune our response strategies. Just hours after the trade war officially began, at 3:00 a.m. Beijing time on the morning of the 7th, the Office of the United States Trade Representative announced that U.S. companies importing goods from China that stand to be affected by the trade war may apply to the U.S. government for one-year “tariff exemptions” within a 90-day period. Regardless of how U.S. policy evolves, we should adopt a long-term perspective, investing heavily in product innovation and refinement, cost reduction, the exploration of new avenues to expand exports, and the vigorous development of both domestic and international markets—thus fundamentally enhancing our products’ competitiveness. Only then can we adapt to ever-changing circumstances and ensure the sound, sustainable growth of our industries and enterprises.

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